Do people provide good advice?

Jing Li and Xiao Zhang

Journal of Economic Behavior & Organization, 2022, vol. 199, issue C, 44-64

Abstract: Advice from those who have experience with a decision problem is often believed to be beneficial for decision making. However, if predecessors do not properly update their evaluation of options available for them to choose from based on their experience, they may fail to pass the information obtained from their experience to their successors. This could lead to a worse outcome than in the absence of advice, since the entire group of decision-makers may herd on an inferior choice due to bad advice. Such bad advice could be driven by predecessors’ inability to update properly, or a lack of willingness to exert effort to update. In a laboratory experiment, we study how likely predecessors are to give useful advice and identify the possible reasons for giving bad advice. We find that about half of the predecessors did not give useful advice in the sense that they did not update their beliefs properly. However, individuals making the same decision for themselves multiple times were more likely to update correctly. The difference between the advice givers and the individual decision-makers suggests that unwillingness to exert effort may be the main driving force for bad advice. As a result of bad advice, the presence of advice did not improve successors’ decision quality. We also find that the role of being advice givers may change how they made the decision for themselves. But self-selection of advice givers did not improve their effort level or advice quality. Interestingly, narcissistic personality is negatively related to advice givers’ effort level.

Keywords: Advice giving; Bayesian updating; Herding (search for similar items in EconPapers)
JEL-codes: C91 C92 D70 D83 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:199:y:2022:i:c:p:44-64

DOI: 10.1016/j.jebo.2022.05.009

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